How Europe's rising energy crisis now costs equivalent to Poland’s GDP

It has been a bad year for Europe. Just when Europe was beginning to recover from the aftershocks of the Covid-19 pandemic, the war in Ukraine wreaked havoc across the continent. Europe has relied on cheap Russian fuels for years now. Its industries practically became the giants that they are due to the availability of cheap energy sources bought from Russia. So, when the West sanctioned Russia for its war on Ukraine, Vladimir Putin decided to hit Europe where it hurts the most. He stopped giving Europe what the bloc needed the most – natural gas.

That unleashed a crisis Europe has never seen before. It is called the European Energy Crisis. Governments across Europe are scrambling to cushion the blow of this crisis for households, businesses and entire industries. That is costing Europe a fortune, and it still isn’t close to sufficient.

Europe’s Massive Energy Bill

European governments are subsidising energy bills for consumers. That means energy bills have been capped, and consumers are not paying beyond a certain limit.

Europe is also buying liquefied natural gas from non-Russian suppliers at exorbitant rates, and that is costing European governments a fortune. Somebody has to make up the difference. In Germany, for instance, the government is covering up to 80 per cent of energy bills. That means what under normal circumstances would be paid by energy consumers is now being paid by the German government.

Countries in the European Union have earmarked and allocated about €600 billion of support since September 2021 to shield consumers from soaring costs. That is hardly the end of the massive tab hanging over Europe’s head. If measures in the United Kingdom and Norway are taken into account, the figure zooms past €705 billion .

That is almost equal to the GDP of Poland, which has a GDP of about $716 billion .

Not too long ago, the European Union had agreed to spend €740 billion across the bloc to help countries recover from the economic costs of Covid-19. Essentially, Europe’s energy crisis is as big as the pandemic was. The pandemic has more or less been tamed. However, Europe’s energy crisis rages on, and industries are saying European governments are not doing nearly as enough to protect the bloc’s economy.

So, Europe has a tab of nearly €1.5 trillion hanging over its head if the Covid-relief fund and the cost of mitigating the impact of the energy crisis are combined. At the core of Europe’s massive spend are high energy bills. Mind you, energy bills are not expected to come down drastically any time soon. If at all, Europe’s energy crisis is set to worsen next year as gas storages become empty.

Europe was able to fill its storages this year with Russian gas before Moscow shut the taps off in a dramatic manner. Those volumes of Russian gas will not be available for Europe next year. It will have to rely purely on expensive LNG imports and whatever little gas volumes countries like Norway, Azerbaijan and of course Russia provide it with.

That means the share of expensive LNG flowing into Europe will be more next year. That is expected to shoot prices over and above their current spots. Europe is also going to ban purchases of Russian oil in December, followed by a ban on Russian petroleum products in February.

That will have its own set of negative consequences for Europe’s energy markets.

What Europe is doing wrong

First of all, Europe has decided to kick all fiscal considerations out of the building.

The kind of money Europe has been spending on the energy crisis is not what it can afford. For example, Germany has allocated €264.3 billion to cushion the impact of the energy crisis. That represents 7.4 per cddnt of Germany’s GDP. Here is some perspective. Germany’s defense budget is around €50 billion . Evidently, he energy crisis is emptying Germany’s coffers at an unprecedented pace.

Across Europe, countries are diverting significant portions of their GDP to tackle the energy crisis, and they are still failing. That is because Europe’s energy relief measures are untargeted and meant to last for unsustainable time periods.

Ideally, European governments should be providing relief to only the most vulnerable businesses and families. Instead, almost everyone in Europe is benefitting from relief measures, making them less of a targeted intervention and more of a socialist handout for all consumers.

Fiscal prudence demands that the relief be temporary, and for a short window. If governments start paying the bills of consumers for months, and even years on end, they will find themselves at risk of being unable to service their debts.

Industries in Europe are saying governments are not doing enough . That’s because governments are focussed on alleviating the misery of a lot of people at the same time instead of ensuring the survival of industries.

Eventually, governments will not have the money to continue with their unsustainable relief measures, and even for spending in other areas.

The author is a producer and video journalist. Views expressed are personal.

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